California Decides to Go It Alone on Taxes

Things that Americans routinely do across state borders are made possible by interstate contracts known as compacts: driving your car in another state; adopting a child from another state; working as a nurse in another state without having to get a new license; buying insurance from a company based in another state. The compacts let states get things done without the federal government. They cover state boundaries, education, flood control, health, transportation, water apportionment, and treatment of prisoners, among other issues. There are almost 200 of these agreements, some more than a century old. “Interstate compacts are the most powerful, durable, and adaptive tools for ensuring cooperative action among the states,” the nonprofit Council of State Governments says on its website.

Suddenly, though, the legal standing of the compacts is under a cloud. On Dec. 31 the California Supreme Court issued a ruling weakening one of the most important interstate compacts, a 49-year-old agreement known as the Multistate Tax Compact (MTC). The ruling, some experts say, might embolden plaintiffs who no longer want to abide by the terms of other compacts to challenge those, too. “It creates uncertainty,” says Rick Masters, a lawyer in Louisville, who is special counsel to the National Center for Interstate Compacts, a unit of the Council of State Governments.